State could borrow $1.5M from Nevada County
July 16, 2008
Nevada County could loan the state up to $1.5 million to help balance California’s budget if the governor decides to borrow money from property tax revenue, local officials said Tuesday.
Representatives of local governments criticized the plan.
“It is an untenable solution that only pushes the state’s fiscal problem into future years and further exacerbates the chronic structural deficit,” the California State Association of Counties said on the organization’s Web site.
The association has sent special requests to counties urging them to contact their state legislators to oppose the “taking” of property taxes, said Don Peterson of Peterson Consulting Inc., a lobbyist hired by the county.
Proposition 1A was enacted by voters in 2004 to preserve local government revenues for local programs and services. The 2008-09 fiscal year is the first time the state can legally suspend the provisions of Prop. 1A, and the millions of property tax dollars flowing into county coffers has become an enticing fix for the state’s looming budget shortfalls when combined with other options.
“I think there’s a 50/50 chance that they will do so,” Peterson said.
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Borrowing from funds designated for highways, young children and the mentally ill are other options legislators are considering, Peterson said.
Ten percent cuts across the board still are on the table, too, he added.
“It’s a combination of cuts and borrowing,” Peterson said.
Most affected by cuts and borrowing will be the poor, children, the elderly, the mentally ill, schools, cities and special districts such as Nevada Irrigation District, officials said.
“We are concerned about the outcomes of the state budget,” said Alison Lehman, director of the county’s department of social services. Child welfare and home supportive services are areas of greatest concern, she said. Staff have already seen an increase in case loads because of the economy, she added.
Ten-percent cuts expected for money to social services and other departments dependent on state funding have already been included in the county’s adopted budget, said county chief financial officer Joe Christoffel.
“We do not anticipate any layoffs,” Lehman said. Enhancing services and filling vacated positions are on hold for now, she said.
“We’re very careful to keep expenditures at safe levels until we know what the state budget is,” Christoffel said.
The state is limited to borrowing up to 8 percent of the prior year’s property tax assessments. It must repay the money in three years with interest, according to the constitutional protections within Proposition 1A, Christoffel said.
That could mean upwards of $1 million to $1.5 million coming from Nevada County government, Christoffel said.
If borrowed now, the state cannot borrow again for another decade. Prior to Prop. 1A, the state took $2.6 billion from local governments statewide between 2004 and 2006, Christoffel said. Nevada County paid $1 million to the state during that two-year time period, he said.
Conservative estimates show the state could borrow up to $1.8 to $2 billion in property tax revenue and would pay back the loans with a pooled interest rate, Peterson said.
“It’s generally less than a market rate,” Petersen said. “Let’s assume you’re a budget maker… That would look very tempting.”